FICO Treasury Part 4: In-House Cash, Cash Pooling and Intercompany Netting

📌 KEY POINTS
✅ Cash pooling concentrates balances of group companies so surplus cash funds deficits without external borrowing.
✅ Physical pooling moves money (sweeps); notional pooling offsets balances for interest without moving money.
✅ An in-house bank keeps internal current accounts for subsidiaries and executes payments on their behalf.
✅ Intercompany netting settles mutual receivables and payables periodically with a single net payment per company.
⚠️ Pooling creates intercompany loans with interest, tax and legal implications that must be agreed before go-live.

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▶ WHERE WE ARE
Part 3 showed how a payment factory pays. Part 4 shows how group liquidity is centralised behind it.

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▶ 1. WHY CENTRALISE LIQUIDITY
Without pooling, one subsidiary may hold surplus cash while another borrows from a bank at a higher rate. Centralising liquidity reduces external borrowing, improves visibility and lets the group invest surplus more effectively. The trade-off is legal and tax complexity, because balances between companies become intercompany loans.

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▶ 2. PHYSICAL VERSUS NOTIONAL POOLING
In physical pooling, the bank sweeps subsidiary account balances to a header account daily (zero balancing or target balancing), creating intercompany receivables and payables that must be posted and bear interest. In notional pooling, balances stay where they are and the bank calculates interest on the combined position; no intercompany postings arise, but not all countries and banks allow it.

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▶ 3. IN-HOUSE BANK
An in-house bank, run by the group treasury, holds internal accounts for each subsidiary. Subsidiaries send payment orders to the in-house bank, which pays externally through its own bank accounts and debits the subsidiary's internal account. Incoming payments can be credited similarly. In S/4HANA this is supported by in-house cash capabilities and advanced payment management, with statements generated for each subsidiary's internal account.

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▶ 4. INTERCOMPANY NETTING
Instead of each pair of companies paying each other, a netting cycle collects mutual receivables and payables, calculates one net amount per company, and settles through the netting centre. This reduces bank transactions and foreign exchange costs. SAP processes support selecting open intercompany items and clearing them against the net settlement.

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▶ 5. ACCOUNTING AND CONTROLS
Each sweep or internal payment must post intercompany balances in both companies, interest must be calculated at agreed rates, and balances reconciled monthly. Transfer pricing and thin-capitalisation rules may apply to interest. Agree the legal framework and documentation with tax and legal teams before configuring anything.

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▶ STEP BY STEP

1. Draw the group's account structure and identify pool header and participant accounts.
2. Post a test sweep and check intercompany postings in both companies.
3. Process a payment on behalf of a subsidiary through the in-house bank in test.
4. Run a netting cycle with three companies and verify net amounts.

✅ CHECKPOINT: you can explain the postings for a sweep, a payment on behalf and a netting settlement.

A group introduced zero-balancing sweeps but did not post the resulting intercompany positions in the subsidiaries. Months later, subsidiaries' bank accounts showed zero while their books showed large cash balances. The team built automatic postings from bank statements for sweep transactions and a monthly intercompany reconciliation of pool positions.

• Sweeps without intercompany postings in participants.
• No interest on pool balances or undocumented rates.
• Ignoring legal and tax restrictions per country.
• Netting without agreed cut-off and dispute rules.

• Legal and tax framework agreed upfront.
• Automated postings for sweeps from bank statements.
• Monthly reconciliation of internal and pool positions.
• Documented interest rates and calculation.

Interviewers ask the difference between physical and notional pooling, what an in-house bank does, and which postings and controls pooling requires.